- The humanitarian and economic crisis in Yemen continues in the face of high domestic prices and halted oil exports.
- Maintaining reform momentum and progress on conflict resolution will be key to improve the economic outlook. Immediate efforts should focus on continuing to strengthen public financial management and preserving the FX auction system.
- Additional external financing is urgently needed to safeguard hard-won gains and support the ongoing reform process.
Washington, DC: An International Monetary Fund (IMF) team, led by Joyce Wong, conducted a virtual and in-person mission in Amman, Jordan with the Yemeni authorities from May 25 to June 8. Discussions covered recent economic developments in Yemen, the outlook, and progress on key reforms. At the end of the mission, Ms. Wong made the following statement:
"Despite cautious optimism about the ongoing peace process, the economic and humanitarian crisis in Yemen continues. Currently, 17 million people are estimated to face acute food insecurity, while a high-level UN pledging event raised only US$1.2 billion of the US$4.3 billion needed to address this crisis. Despite the recent decline in global food and fuel prices, domestic prices remain high, with food inflation averaging 45 percent in 2022.
"Risks to macroeconomic stability in the short term are highly dependent on the evolution of the conflict and availability of financing. Attacks on oil export facilities in October 2022 have deprived the government of most of its revenues in foreign currency, equivalent to about half of total revenues. This, combined with a rise in global oil prices, widened the fiscal deficit to 2.5 percent of GDP in 2022. Without a resumption of oil exports, the deficit is expected to widen further in 2023, despite cuts in much needed expenditures.
"Notwithstanding these challenges, the authorities have continued to strengthen institutions, including improving expenditure control and budget planning, tax administration, and financial reporting. They have also taken further steps to adopt the market exchange rates for customs revenues, while constraining inflation by maintaining zero growth in the monetary base. The mission encouraged the authorities to maintain this welcome reform momentum, including to push forward reforms in the electricity sector to reduce costs and increase revenue collection. Preserving the weekly foreign exchange (FX) auction system, which provides FX to finance essential imports in a transparent manner at market exchange rates, will be key to constraining inflation and supporting exchange rate stability through the absorption of liquidity. Moreover, progress on financial reporting and finalizing outstanding audits will further enhance central bank governance.
"External support is urgently needed to alleviate financing pressures, reduce monetary financing, and safeguard hard-won exchange rate and price stability. Further improvements in governance, together with efforts at addressing data gaps, in particular on external and domestic debt, will be essential to enhance transparency and eventually help catalyze additional financing.
"Continued close donor engagement on capacity development to fill remaining gaps, while increasing funding availability and agility of support, will be key. To this end, the mission held extensive discussions with the authorities and donors to better coordinate, prioritize, and sequence activities. The IMF will continue to provide comprehensive technical assistance to Yemen to further enhance institutional capacities.
"The mission team expresses deep appreciation to the Yemeni authorities, technical staff, and all counterparts for their excellent cooperation and candid discussions and looks forward to continued close engagement."
